forecasting essay

INTRODUCTION

● Forecasting is the process of making predictions about changing conditions and future events that may significantly affect the economy.

Leading indicators

Leading indicators are those economic indicators that change before the economy has changed.

1. Volume of orders in manufacturing

2. Stocks in relation to demand for manufacturing and trade

3. Number of residential building plans passed

Co-incident indicators

Coincident indicators are used to compile the business cycle. The co-incident indicators of the South African economy are:

1. Real GDP, excluding agricultural, forestry and fishing;

2. Real retail sales;

3. Physical volume of manufacturing production;

Lagging indicators

Employmentin the non-agricultural sectors;

2. Hours worked in construction;

3. Wholesale s of metals

MOVING AVERAGES

moving average is a statistical analytical tool that is used to analyse the changes that occur in a series of data over a certain period of time.

● Moving averages are used to minimise the effect of short-term fluctuations like seasonal fluctuations.

● The aim is to highlight the long-term movements when dealing with time series data (observations of a variable made over time) in economics. ● Applying moving averages to thebusiness cycle reduces the impact of events and reveals underlying trends

EXTRAPOLATIONS

● Extrapolation means to estimate something unknown from facts or information that is known.

● It is a technique used to predict the future by using past data.

TREND

● The trendline represents the expected economic growth rate of a country given that the resources are used fully.

AMPLITUDE

● It measures the intensity of the contraction and expansion phases.

● It is measured as the vertical distance between the trend line and the turning points of the cycle.

● Sometimes the deviation of the trough from the trend line is small and the contraction or recession phase is said to be mild.

TREND

● The trendline represents the expected economic growth rate of a country given that the resources are used fully.

● It is also referred to as the long-term growth potential of the economy.

● The trendline normally has a positive slope because the production capacity of the country increases over time.

LENGTH OF BUSINESS CYCLES

● The length of a business cycle is measured from one peak to another peak or from one trough to another trough.

● The length is measured as the number of years (months) it takes for the economy to move from one peak to the next.

● A full cycle therefore includes a peak, a contraction phase (recession and depression), a trough and an expansion phase (recovery and boom).

● Longer cycles show strength.